Concrete AnalysisSurvey reveals deep structure of Hong Kong Grade A office market
Key findings include the ownership concentration of Grade A properties, with 59 per cent of overall stock in the hands of local listed developers
A recent survey by DTZ Research in Hong Kong has revealed some interesting facts about the underlying "deep structure" of the city's Grade A office market, how it has evolved over the past two decades, and how it is likely to be further transformed over the coming decade.
Unlike mainland China's tier-one cities, which have witnessed rapid growth in their office markets over the past 15 years, the Hong Kong office market expanded continuously but much more gradually.
A key finding is how remarkably concentrated the ownership of Grade A office properties is in the hands of local players. While 71.6 per cent of the Grade A stock is domestically owned, 59 per cent of the overall stock is in the hands of listed developers.
Given the cost and difficulty of assembling a Grade A office site in Hong Kong, companies that had the vision and wherewithal to develop such properties have generally been reluctant to dispose of them. The only exception to this rule is developments located in new and unproven areas, which are still subject to rapid transformation.
Yet another interesting fact revealed by our survey was that while Grade A office ownership has been very much developer-dominated over the past 15 years, corporate share of ownership of Grade A office stock rose from 4.6 to 7 per cent as a result of rising rentals.
The other point that emerged from the survey was that due to the rapid process of de-industrialisation that Hong Kong went through, combined with the constraints of Hong Kong's inner-city area and the government's ban on further reclamation of Victoria Harbour, the greatest opportunities for engaging Grade A office development were presented in the few inner-city areas, which once had large concentrations of manufacturing plants.
The process was further promoted in 2001 with the rezoning of Kowloon Bay and Kwun Tong for business use, thereby increasing the supply of modern office or mixed-use commercial properties. Meanwhile, in 2005, the provision of amenities in these two areas had improved to the point that major corporations - mostly banks and insurance companies - started to enter Kowloon East in force, setting up what were initially back-office operations.